Hey folks! @doggedfi here, short for doggedly pursuing financial independence!

 

 

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What the heck is financial independence?

 

 

You may have heard this term floating around the Interwebs more and more recently. Basically, the idea is that focused and proper management of your finances can get you to a point where you have what some call..

"F-U money"

(I bet you can guess what it stands for.)

 

Once you are financially independent and have enough F-U money, you are no longer forced into working to live. You can finally escape the 9-5 corporate rat race and retire, if you so choose. If this is something that interests you, then I want to help you get set up for success!

 

Financial independence is typically achieved by using the magic principle of "compound interest". You invest money, that money grows via interest the first year, that money + interest gains more interest in year 2, and so on. For example, investing just $200 a month can grow substantially over time. This effect is greatly magnified as number of years and size of investments increase.

 

(Try plugging in your own numbers to the compound interest calculator here.)

 

 

“The power of compounding is so great that our first job as investors is to avoid anything that might short circuit it.”-Ira Rothberg

 

Keep in mind that compound interest is a double-edged sword. It has the potential to be either your best friend or your worst enemy.

 

 

Staying in credit card debt month after month is a situation where compound interest is working against you. Your debt gains interest, debt + interest gains more interest, etc. Credit cards also have viciously high interest rates so use them responsibly (by responsibly, I mean pay off the entire balance every month).

 

Okay, tell me more..

 

First, you need a proper foundation upon which you can build up toward financial independence. The following steps should be performed in this order:

• Stack up your "emergency fund" of 3 to 6 month's worth of living expenses
   
• Contribute money to your employer-sponsored 401k/403b retirement plan up to the company match (ex. You have a $50,000 annual salary and your company matches %6. You invest $3000, your company also invests $3000. This is literally free money, take advantage of it.)
   
• Crush the enemy of wealth - debt - by paying off your highest interest rate debts first
   
• Open your own Roth IRA retirement account and contribute the maximum $5,500 a year ($6,500 if over 50 years old)
   
• Increase your 401k/403b contributions up to the annual maximum ($18,000 a year, not including any company match %)
   
• If you have left over money, invest more into regular taxable accounts

 

You also need to have a solid understanding of your income, expenses, assets, and liabilities. A good way to start assessing this is by opening a free Personal Capital account. You can enter all your financial accounts, assets and debts and they are aggregated into a great visual dashboard.

 

 

Budgeting will be your best friend by helping you control your expenses. I highly, HIGHLY recommend using the software called You Need A Budget (YNAB). I've used it for a couple of years now and it is excellent. I hated budgeting before YNAB and I never followed through with any other method. You can try it for 34 days for free and students can use it for a full year for free. YNAB will show you where every single dollar of your money goes each month. Use this info to cut out wasteful/unnecessary spending.

 

 

Once you have a solid handle on your income, expenses, and how much money you are able to save each year, you can use the Networthify calculator to determine when you are financially independent and able to retire!

 

 

(Check your own current Networthify number here.)

 

We'll do a deeper dive in future posts on the key steps you should be taking to achieve financial independence if its something that you're interested in. Optimize your finances, slash your expenses, crush your debt (maybe mix in some kickass Steemit earnings) and you'll be financially independent and possibly retired before you know it.

 

I realize this is a ton of information.
Follow me @doggedfi for the next parts
of this financial independence series!

 
Recommended reading:

The Simple Path to Wealth
Mr. Money Mustache
The Mad Fientist
Personal Finance subreddit
Financial Independence / Retire Early subreddit

 

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Sources: 1, 2, 3, 4, 5, 6, 7

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@doggedfi

Proud greeter and supporter of the Minnow Support Project,
brought to you by @aggroed, @ausbitbank, @canadian-coconut, @teamsteem.